Termination of US trade deficit with tariffs is impossible and can lose two long -term US surpluses
The Trump Administration has chosen to eliminate US trade deficit as its main objective of economic policy. This is wrong. In almost all cases, the scope of the country's trade deficit should not be considered as a political variable.
President Trump's tariffs were implemented to allegedly combat the deficit of a major and permanent trade in the United States. The Trump Administration believes that these shortcomings are the consequence of foreigners to take advantage of the US through unfair trading practices. As we wrote two weeks ago, the administration is wrong in both cases. The US trade deficit has grown at home and is easy to finance American access to cheap capital because of the privilege.
Now that the tariffs have been applied and threatened with more threats, they can reduce two excellent US surpluses based on the misleading concept of risk deficiencies: the surplus of its trade in services and the high capital surplus due to the US trade deficit. Not surprisingly, President Trump's lips are sealed with these surpluses.
The Trump Administration is a deeply sixth service story, as the US is consistently organizing a major trade surplus in its services sector. In fact, the United States imported about $ 750 billion in external services in 2023 and exported domestic services over $ 1 trillion. This resulted in a surplus of $ 250 billion. The story was more -or less the same in 2024, when the US led the surplus of nearly $ 300 billion. This year, during the first two months of 2025, the surplus of services has been $ 50 billion, which shows that it is again on the right track for $ 300 billion.
Where does this surplus of services come from? The largest part of US services was in the financial services-industry, which produced a surplus of $ 130 billion in 2024. American banks cover around the world, especially when it comes to providing foreign investment banking counseling services to foreign companies. Indeed, in 2024. The top five of the worldwide investment banking revenue are were busy None other than Goldman Sachs, JP Morgan, Morgan Stanley, Bank of America and Citigroup.
Tariffs are threatened by a surplus of services as they create uncertainty and uncertainty reaches the investment banking revenue. Each year, there is a limited number of companies in the market for mergers, acquisitions or debt or equity in the market for financing – if you wish. Each bank competes for the larger and larger slice of this pie. When a healthy dose is injected into income, it is more difficult for companies to make long -term plans for the merger or a new funding round. Thus, the fixed pie, investment banking revenue decreases and the surplus of US services is shrinking. We are already following this mechanism in slow motion. For example, after “Liberation Day” on April 2, when the White House reported new tariffs, companies like American Airlines, Delta, Southwest, Diageo and Logitech have already stopped release Further guidance. At the same time, the transactions are down to stop.
Tariffs have also jeopardized the surplus of the United States capital. Nobel Milton Friedman once marked In an interview that “the trade deficit is not a deficit. In another sense, it is a surplus of capital.” Indeed, the trade deficit and capital surplus are two sides of the same coin. If the United States is a trade deficit (current account) of its goods and services, the balance of payments requires that it must be compensated for in the United States financial account. The US financial account registers a negative balance if the purchase of foreign US assets is greater than the purchase of foreign assets in the United States. This is actually a net capital surplus. And as it turns out, the United States has registered the net capital surplus almost every quarter since 1982.
The policy of reducing any bilateral imbalance is likely to reduce the absolute volume of trade in all countries and the level of economic well -being. Not surprisingly, both tariffs have reduced the growth prospects of the United States and the talks of foreign counterparts against US companies. This makes us less attractive to foreign portfolios. China has already done attached More US companies in the export control list and the Untrustded Units list and the European Union has threatened implement Stricter rules of US technology companies. Tariffs have also created interest rate volatility in the Treasury Market, damaging the safe status of the Treasury securities and making the $ 9 trillion governmental institution a relatively less attractive securities market for international investors.
President Trump wants to terminate US trade deficit tariffs. This is impossible – the only way to reduce US trade deficit is to customize our savings to US investments, which would take place, for example, if policies are adopted to balance the federal, state and local government deficiencies. So, tariffs are not only a meaningless way to reduce US trade deficit, but can lose two long -term US surpluses – services and capital surplus. In this trade war, any victory would be a pyrical victory for the US.
Steve H. Procurement is a professor and author of Johns Hopkins University with Leland Yaager,Capital, interest and waitingTo. Caleb Hofmann is a researcher at the Johns Hopkins Institute of Applied Economics, Global Health and Business Investigation.
This story was originally reflected on Fortune.com
